What type of dishonesty disqualifies a person from having an SMSF?

This article examines the nature of disqualification and what convictions can preclude a person from forever being an SMSF trustee/director. Given the serious consequences of disqualification, it is important to consider the circumstances in which a person may have been automatically, and even unknowingly, disqualified.

SMSF members should also consider that their children, as a child who gets caught out with a petty conviction, may subsequently discover that they can no longer be or become a member of their parents’ SMSF. This might seriously impact the family’s succession plans.

What is a ‘dishonest’ offence?

A person can be disqualified if they are convicted of an offence involving dishonesty. This is regardless of whether the conviction was in Australia or anywhere overseas. There is also no time limit that applies — a conviction in one’s youth even if they are under 18 years of age can forever preclude that person from becoming an SMSF member.

Unfortunately, there is no clear guidance on what convictions constitute “dishonesty”, and indeed, “dishonest conduct” is not defined in the legislation. However, the ATO has provided several broad examples of such convictions, including fraud, theft and illegal activities or dealings. Notably, disqualification can occur for convictions occurring at any time, including convictions that were not recorded by the court for reasons of the person’s age or due to the conviction no longer being publicly available.

While dishonesty may be apparent or obvious in many cases, there is often some grey areas where the specific intent and severity of certain acts may not readily constitute dishonesty and require expert advice to determine whether there is an issue.

For example, is a teenager who is convicted of fare evasion on public transport forever precluded from being a member of their family’s SMSF?

If we refer to the Explanatory Memorandum to the legislation, there is guidance including an example of a minor (under 18 years) shoplifting 20 years ago charged with an offence involving dishonesty that would disqualify them as an SMSF trustee/director.

This raises an interesting dilemma in terms of comparative culpability, as arguably a violent assault or even murder could be done without dishonest intent, and therefore would not result in disqualification.

Should the legislation be designed to apply this strictly? Are there any exceptions to being disqualified?

Generally, a person convicted of an offence involving dishonest conduct is a disqualified person for life. However, there is one important exception in cases which do not involve “serious dishonest conduct”.

Serious dishonest conduct is an offence where the penalty imposed can involve a term of imprisonment for more than two years or a fine of more than 120 penalty units. This equates to a monetary penalty of $25,200 (a penalty unit is $210 on 1 July 2019 and this amount is indexed each 1 July).

In a case where the dishonest conduct was not deemed “serious” (i.e. it involves less than two years’ imprisonment or less than 120 penalty units), an application can be made to the ATO seeking a waiver of the disqualified person status. Such an application must be made within 14 days of the conviction, unless good reason for the delay is provided to the ATO’s satisfaction. (See, for example, Mourched v FCT [2014] AATA 223 where the ATO refused to grant an extension of time beyond the 14-day deadline.)

Consequences of disqualification

If someone continues to act as an SMSF trustee when they are disqualified, they will be committing an offence with significant criminal and civil penalties. Furthermore, it is an offence for an SMSF trustee/director to become disqualified and fail to notify the ATO immediately.

It is also important to note that a person’s legal personal representative (e.g. an attorney acting under an enduring power of attorney) is also precluded from being a replacement trustee/director in place of a member who is a disqualified person, which generally forces a disqualified person to forever cease to be an SMSF member within a six-month period of their conviction. This is based on the usual six-month grace period that an SMSF has to restructure to comply with the trustee-member rules in s 17A of the Superannuation Industry (Supervision) Act 1993 (Cth) before ceasing to be an SMSF. That is, a member who is convicted of an offence involving dishonesty must cease immediately from being an SMSF trustee/director, but the SMSF will not contravene s 17A until after a six-month period.

Are there any other options?

Where an SMSF has a member who is a disqualified person who cannot obtain a waiver, the following options are available:

  • The first is to roll over the disqualified person’s account balance to a large (Australian Prudential Regulation Authority, i.e. APRA) super fund; for example, an industry or retail super fund.
  • The second is to convert the SMSF into a small APRA fund by appointing an APRA-approved trustee (which is more correctly known as a Responsible Superannuation Entity Licensee, i.e. RSE Licensee).
  • The third, where the disqualified person has retired, attained age 65 or satisfied another condition of release with a nil cashing restriction, is for the disqualified person to withdraw all their benefits from the SMSF. Careful consideration should be given prior to withdrawing money from the super system, as the contribution rules are now very limited.

Note that any corrective action must generally occur within six months of disqualification.


SMSF trustees, advisers and especially SMSF auditors should continually monitor the eligibility of members to ensure they have not been disqualified. Naturally, clients are not always forthcoming about prior offences and previous indiscretions, and therefore, it is particularly important for advisers to actively consider the issue of disqualification. Advisers should include appropriate checks in their procedures to ensure no disqualified person is admitted or remains for more than six months in an SMSF. Finally, advisers should check to see if any of the SMSF member’s children may be disqualified and fine-tune their estate and succession plans accordingly.

Daniel Butler, director, DBA Lawyers

SMSF-specific education crucial

Advisers wishing to provide SMSF advice should be required to complete an SMSF-specific qualification, the SMSF Association (SMSFA) has said.

In its budget submission for 2020/21, the SMSFA called out the Financial Adviser Standards and Ethics Authority (FASEA) for failing to recognise specific SMSF education as part of its training requirements for advisers looking to provide SMSF advice.

“It is unfortunate new advisers are able to reach the required FASEA threshold to give financial advice and be able to give SMSF advice without specific SMSF knowledge being part of the required learning outcomes,” the association stated.

“This is problematic given that SMSFs are a specialised retirement savings vehicle and are distinctly different to large superannuation funds.”

FASEA’s current “broad, high-level” approach did not provide advisers with the necessary insight to give advice on complicated SMSF matters, it added.

“This is especially pertinent when SMSF trustees, due to the self-directed nature and complexity of SMSFs, are susceptible to poor financial advice with potentially significant detrimental outcomes to individuals,” it said.

“Complex SMSF limited recourse borrowing arrangements, business real properties and related-party transaction issues are not discussed in any material detail in the current education standards for advisers, but involve significant strategic and compliance issues for SMSF trustees.”

It pointed out that in addition to increasing advisers’ knowledge in terms of complex SMSF legislation, raising the bar for the qualification of SMSF advisers would have the knock-on effect of promoting higher standards among new advisers interested in providing SMSF advice.

“There will be many situations where financial advisers who are licensed to give advice may not have many SMSFs in their portfolio of clients,” it noted.

“An SMSF education licensing requirement to provide SMSF advice in this situation will either force the adviser to complete requirements to advise their SMSF clients or force SMSF members to seek licensed advisers whom deal with SMSFs and the specialist issues involved on a regular basis.”

Source: smsmagazine.com.au

3 common SMSF errors and how to avoid them

There are three major errors being made by many Australians invested in the self-managed super fund space, according to investment adviser, Chris Brycki.

Speaking recently on a podcast, Stockspot founder and CEO Chris Brycki explained why simple investment solutions generally provide better results for SMSF investors.

Mr Brycki said that for the average person, “as much as the financial industry likes to sell the idea of trying to beat the market and trying to pick stocks and time when markets are going to go up or down, the reality is that for most people, it’s not possible”.

Not only for amateurs, but for professionals as well.

The investment expert said this has been the case for “30 to 40 years at least now”.

In Mr Brycki’s opinion, people shouldn’t be focused on those market factors when it comes to investing.

Instead, he said “they should be focusing on actually reducing their unforced errors or their mistakes”.

Those errors include “not diversifying enough, paying too much in fees and making too many decisions”.

Relating these errors back to the SMSF space, Mr Brycki provided three key considerations that SMSF participants need to be aware of to prevent them from making similar mistakes.


The expert began by stating that “SMSFs historically haven’t been very well diversified”.

Looking at the data, he said “what you can see is that self-managed super funds in Australia have a huge overweight position in Australian shares relative to global shares, and that’s really been a disadvantage to their returns and their diversification”.

In addition, Mr Brycki highlighted that “they also have a big overweight position in cash”.

While conceding cash “ultimately did help some SMSFs weather the storm of the financial crisis”, he considers cash as missing several of the characteristics that are very valuable within bonds.

“Most SMSFs don’t have any high-grade corporate bonds or government bonds, which can really act as a cushion when markets fall and a much better and more effective cushion than cash,” he said.


Mr Brycki also paid attention to the large amount of data supporting the notion that SMSFs pay too much in fees.

“By paying too much, it actually reduces net returns,” he commented.

His view, is that one of the reasons people are paying too much “is because they are overcomplicating things”.

“They’re under the false belief that by adding more complexity and more different types of investments into their portfolio, they’re going to achieve a better return or a better result.”

“The truth is: that’s not the case,” he said.

Mr Brycki countered the notion by stating that investors are probably going to be better off “by actually having fewer investments and making fewer decisions and reducing their costs”.


Despite the overemphasis on decision making potentially leading to an increase in errors, Mr Brycki did highlight the importance of good decision making in an SMSF.

“One of the responsibilities of setting up an SMSF is being able to fight the temptations to make lots of different decisions,” he noted.

“I know as an investment manager, and I know from a lot of the friends that I have seen invest over the years, that the temptation to make lots of decisions and to chase hot things is very high when you’re managing your investments,” Mr Brycki continued.

“You really need the discipline not to do that.”

He recommends outsourcing such a responsibility “to someone that can help keep you honest and keep you on track with your own strategy”.

“Much like when you see a personal trainer — ultimately, all of those exercises you could do on your own,” he said.

“You could go to the gym, you could go for a run, but a personal trainer keeps you accountable and keeps you on track.”

Even for people that do set up in a self-managed super fund, Mr Brycki said he believes “there is some value in having that personal trainer there to keep your strategy on track, to stop you from making mistakes when markets have gone up or gone down and you’re tempted to change something”.

“Ultimately, that’s going to lead to better results at your retirement.”

Source: SMSF Adviser

SMSFA calls for phase-out of limited licensing

The SMSF Association has called for the phasing out of the limited licensing system for accountants, saying it forces SMSF clients to pay fees that are significantly out of proportion to the complexity of advice being provided.

SMSFA chief executive John Maroney said the association had called to scrap limited licensing in its 2020 budget submission, as the system was preventing SMSF trustees from getting basic SMSF advice at a reasonable cost.

“If an SMSF trustee wants to seek advice regarding the establishment of a pension from their accountant, unlicensed accountants are unable to provide this simple advice,” Mr Maroney said.

“Licensed advisers can provide this simple advice, but it involves costly documentation disproportionate to the advice sought.”

He added that the SMSFA would be pushing for reform in the advice space that “reduces complexity, improves efficiency and drives harmonisation to better enable the provision of affordable, accessible and quality advice to business[es] and consumers”.

The association’s submission suggests the abolishment of limited licensing in favour of “a new consumer-centric framework that raises advice standards and rectifies the advice gap to allow appropriately qualified SMSF advisers to provide low-cost, simple advice”.

“The desired policy outcomes from introducing limited licensing have not been achieved,” the SMSFA’s submission said.

“Individuals have unmet needs, advisers face high regulatory costs and accountants are strangled by regulation. What we’re proposing is a new consumer-centric advice framework, with improved SMSF advice a critical element of this project.”

In addition, the association’s submission called for advisers to be given access to their clients’ tax information on the ATO’s online services.

“Currently, only registered tax agents (typically accountants) are able to access [the ATO’s] portal to get total superannuation balance and transfer balance cap information that is crucial for SMSF advice,” the SMSFA said.

“Ironically, these individuals are generally not able to provide SMSF advice as they are not licensed with ASIC. Incongruously, those licensed advisers who can provide SMSF advice (such as financial advisers) have no reasonable way of sourcing ATO portal information directly from the ATO as they are not, generally, the member’s personal tax agent.

“The move to open data and increased access to the ATO portal is an essential step for the $750 billion SMSF industry and the only means by which the sector can institute commercially viable operational surveillance to the standard the ATO rightly requires, and we encourage the government to make this an ATO priority project.”

Source: SMSF Adviser


Catch-up concessional contributions

It’s been a long time coming but members are finally able to use the catch-up concessional contribution rules for the first time this year (2019–20).

The new rules represent a shift away from the government’s previous “use it or lose it” approach to super contributions and provide members with an important opportunity to make additional contributions in later years, when they may be better able to afford it.

However, the new rules also potentially make salary sacrifice and personal deductible contribution advice more complicated, as advisers need to determine both a member’s eligibility to use these concessions as well as the value of the member’s effective concessional cap in a year.

Catch-up concessional contribution recap

Under the catch-up concessional contribution rules, a member is able to carry forward and contribute any unused concessional contribution cap amounts that accrued in the previous five years (commencing from 1 July 2018) where their total superannuation balance (TSB) at the end of the previous financial year is below $500,000.

For example, taking into account the existing concessional cap of $25,000, the new rules allow an eligible member that had $10,000 of concessional contributions in 2018–19 and a total super balance under $500,000 on 30 June 2019, to make total concessional contributions this year of up to $40,000 ($15,000 + $25,000).

As time goes on, the catch-up rules could allow members to make quite high levels of concessional contributions over one year as members will have access to both the standard concessional cap in that year plus any unused cap amounts from the previous five financial years.

For example, taking things to the extreme, the new rules could allow an eligible member to make total concessional contributions of up to $157,5001 in the 2023–24 financial year, assuming they had no concessional contributions in any of the preceding five financial years. Alternatively, someone earning a salary of $70,000 in 2019–20 and only receiving employer SG contributions would accumulate an unused cap amount over the next two years of $36,5002, allowing total concessional contributions of $64,003 in 2021–22.

Once a member starts to use some of their unused concessional cap amounts, the rules operate on a first-in, first-out basis. For example, assume a member had the following unused cap amounts for the following years:

  • 2018–19 – $15,000
  • 2019–20 – $13,000
  • 2020–21 – $5,000

If the member then exceeded the standard annual concessional cap in 2022–23 by $20,000, the unused concessional cap for 2018–19 would be reduced to nil and the unused cap amount for 2019–20 would be reduced to $8,000. 

Finally, it is important to note that a member will only be able to carry forward any unused concessional cap amounts for a maximum of five years. For example, a member’s unused concessional cap amount for 2018–19 must be used by the end of 2023-24.

Unused concessional contribution amounts continue to accrue where TSB is over $500,000

It is important to note that while the $500,000 TSB eligibility requirement restricts a member’s ability to make catch-up concessional contributions in a year, it does not prevent the client from accruing unused concessional cap amounts in that year.

For example, if a member had a TSB of $501,000 on 30 June 2019, the member would be ineligible to contribute any unused concessional cap amounts that accrued in the 2018–19 year in the 2019–20 year. However, if their TSB declined due to negative investment returns or lump sum withdrawals during 2019–20, and was below $500,000 on 30 June 2020, the member could contribute the unused concessional cap amounts that accrued in 2018–19 and 2019–20 during the 2020–21 year.

Practical catch-up contribution advice issues

Before recommending catch-up concessional contributions, advisers need to confirm a range of issues, including:

  1. Value of member’s TSB as at 30 June at the end of the previous financial year;
  2. Value of member’s unused concessional cap amounts for the previous five financial years (commencing from 2018–19); and
  3. Amount of additional catch-up concessional contributions a member can make in a year, taking into account any other concessional contributions, such as employer SG contributions, that will be made during the year.

1. Total superannuation balance

To determine whether a member is eligible to make catch-up concessional contributions, advisers need to confirm that the member’s total superannuation balance (TSB) is below $500,000 at the end of the previous financial year.

Advisers can determine the value of a member’s TSB by making their own investigations or by getting the client to confirm their TSB value with the ATO — potentially via the myGov website. However, advisers should exercise caution relying on any ATO TSB data and should confirm the data is up to date and accurate and includes all amounts that are included in the calculation of TSB.

For example, the value of a member’s interests in an SMSF will not be reported to the ATO until the fund lodges its SMSF annual return. Depending on an SMSF’s circumstances, this may not be until May the following year. Therefore, SMSF members with a TSB that is likely to be close to the $500,000 threshold may need to wait until the values of the member balances have been confirmed.

2.  Value of unused concessional contributions cap amounts

Advisers will need to calculate the value of a member’s unused concessional cap amounts for previous years (commencing 1 July 2018) by making their own investigations, as at the time of writing the ATO does not report this figure. However, the ATO has announced it intends to start reporting unused concessional contributions cap amounts via myGov by the end of 2019.

However, once again, advisers will need to exercise caution relying on ATO unused concessional cap data and should make reasonable inquiries to confirm it is accurate and up to date. In the interim, or as an alternative, advisers should consider contacting the member’s super fund to obtain concessional contribution details for the previous financial years.

In this case, advisers should take care to contact all funds that may have received concessional contributions for the member during the relevant catch-up period. For example, some members could have received contributions to various funds over a number of years due to:

  • the member having chosen to roll over to a different fund during the catch-up period and redirecting their employer contributions to the new fund;
  • the member having changed jobs during the catch-up period and their new employer contributing their SG contributions to the employer’s default fund;
  • the member having multiple jobs and each employer contributing to a different fund;
  • the member’s employer contributing SG and salary sacrifice amounts to different funds.

Advisers should also take care to confirm the status of any personal contributions made by the member in the previous year. For example, a fund may be showing a contribution as a personal non-concessional contribution; however, if the member subsequently gave the fund a deduction notice for the contribution, maybe on the advice of their accountant, the contribution would change status from a non-concessional contribution to a concessional contribution.

In addition, an adviser should exercise caution to confirm whether the amount of any deduction claimed on a personal contribution is likely to change. For example, a member that has already made a contribution and lodged a deduction notice may be able to vary the notice down to reduce the amount they claimed as a deduction — maybe because they did not earn as much income as they expected. Alternatively, if a member wishes to increase the amount of the deduction claimed, they could lodge another deduction notice specifying the additional amount they wish to claim. 

Where a member has not made any personal deductible contributions during the catch-up period, an adviser could also calculate a member’s unused concessional cap by checking the employer contribution details for the member via their myGov account. While myGov does not report unused concessional cap amounts, it does report employer contribution details for 2018–19, which could allow an adviser to calculate a member’s unused cap amount for that year (and later years). While the ATO has announced it intends to start reporting members’ personal deductible contribution information via myGov, this is not expected until sometime in 2020. Therefore, these amounts would need to be factored in separately.

Another alternative could be to check any payslips for superannuation contribution details. Once again, an adviser would need to check the member had not made any personal deductible contributions and had not changed jobs or had multiple jobs during the relevant bring-forward period.

Finally, as part of calculating the member’s unused cap amount, an adviser will also need to identify any amounts of unused concessional cap that the member may have already used and deduct those amounts from the relevant year. See catch-up concessional contribution recap above for more details. 

3. Calculate contribution amount

Once an adviser has confirmed the value of a member’s unused cap amounts, the next step is to determine the member’s effective concessional cap in a year, taking into account the value of any other concessional contributions made during the same year.

For example, if an eligible member had unused concessional cap amounts in 2018–19 of $5,000, their effective concessional cap in 2019–20 would be $30,000. However, if the member will have employer contributions of $21,000 this year, their cap space will only be $9,000.

Therefore, it will be important to take into account the level of a member’s employer contributions that will be made during a year, including any additional contributions due to salary sacrifice arrangements or bonus payments, when determining the additional contributions a member can make during a year.

Advice strategy opportunities

As previously discussed, the catch-up concessional contribution rules provide members with the flexibility to make additional concessional contributions via either a salary sacrifice arrangement or by making personal deductible contributions in a later year when they may be better able to afford it.

For example, the new rules allow members who have spent time out of the workforce caring for an elderly family member or on maternity leave to make additional concessional contributions to catch up for those contributions they missed out on. Alternatively, the catch-up contribution rules could allow members on average incomes that have only been receiving employer SG amounts to make extra contributions to fully utilise their concessional cap. However, in many cases, the ability to make additional contributions will be entirely dependent on the member’s level of income and their ability to afford extra contributions.

In this case, members wanting to make extra contributions could consider alternative strategies, such as: 

• selling assets to fund personal deductible contributions or transferring listed shares or managed funds into an SMSF as an in-specie personal deductible contribution;

• contributing some or all of an annual bonus as a personal deductible contribution;

• contributing all or part of a windfall, such as an inheritance, as a personal deductible contribution; or

• from preservation age, entering into a salary sacrifice arrangement and replacing the lost income with a transition to retirement pension. 

Disposal or transfer of assets

Where a member wants to transfer the capital value of assets into super, they could either sell the assets and contribute the proceeds or transfer the assets into an SMSF or super wrap as an in-specie contribution.

In either case, the disposal or transfer will trigger a CGT event and could result in the member realising a large capital gain. However, a member could potentially make a personal deductible contribution to offset some or all of the capital gain. In this case, the deductible contribution amount could be increased if they are eligible to utilise the catch-up contribution rules and have unused cap amounts available.

For example, assume a member earning $70,000 and receiving 9.5 per cent employer SG, sold an asset in 2020–21 realising a net (discounted) capital gain of $35,000. In this case, assuming the member was eligible to make catch-up concessional contributions and had an unused cap amount in 2019–20 of $18,350, they would have an effective concessional cap in 2020–21 of $43,350. Taking into account the 9.5 per cent employer SG contribution, this would allow the member to make a personal deductible contribution of up to $36,500 to fully offset the amount of the capital gain and still remain within their concessional cap. 

As a result, by contributing $35,000 of the sale proceeds as a personal deductible contribution, the member will have achieved their objective of boosting their super while also saving $6,800 in tax being the difference between the tax payable on the capital gain of $12,050 and 15 per cent contributions tax of $5,250.

Alternatively, where an eligible member receives an end-of-year bonus, they could achieve a similar result by using the catch-up concessional contributions rules to make a personal deductible contribution equivalent to the pre-tax value of the bonus amount. However, in this case it will be important to factor in any SG payable on the bonus (also taking into account the SG maximum contribution base for the relevant quarter where relied on by the employer) as well as the member’s salary as this could effectively reduce the amount of remaining cap they have available.

Member receiving a windfall

Members receiving a windfall, such as an inheritance, could potentially use the catch-up concessional contribution rules to fully utilise any amounts of unused concessional cap they have available. Also taking into account the deduction available, this could allow them to reduce their tax and further maximise their contributions to super. 

For example, an eligible member with $10,000 of unused concessional cap from 2018–19 would have an effective concessional cap in 2019–20 of $35,000. Assuming the member received a small $10,000 inheritance and were already salary sacrificing up to the concessional cap, they could use that amount to make a $10,000 personal deductible contribution — which would result in $1,500 tax payable and net contributions of $8,500.

However, assuming the member was on the 37 per cent tax rate, this would also potentially qualify the member for a tax reduction or refund of $3,700. Assuming the member then contributed that amount to super as a non-concessional contribution, the member would have net contributions of $12,200. 

Member has reached preservation age

Members reaching preservation age could also utilise their unused concessional cap by entering into a prospective salary sacrifice arrangement to fully utilise their unused concessional cap over one or more years and then commence a transition to retirement (TTR) pension to replace some or all of their lost income.

While the reduction in the benefit of the salary sacrifice TTR strategy since 1 July 2017 is well understood, it is important to appreciate that this has been due to the combined impact of both: 

  • the removal of the tax-free status of earnings on assets supporting TTR income streams, and
  • the reduction of the concessional cap for members over age 50 from $35,000 to $25,000.

Therefore, the ability of eligible members to use the catch-up concessional contribution rules to salary sacrifice unused cap amounts that have accrued over the previous five years (from 1 July 2018) could see eligible members get an increased benefit from implementing the strategy.

For example, a 60-year-old member on a $100,000 salary with a total super balance of $450,000 on 30 June 2021 would likely accumulate approximately $633,169 in super by age 65, assuming they just continued to receive employer SG contributions over that period.

Alternatively, if they entered into a standard TTR strategy and salary sacrificed up to the standard concessional cap each year and commenced a TTR pension to replace their lost income, they would instead have total super savings of $651,817 by age 65.

However, if the member had $50,000 of unused concessional cap from the previous three years, they could salary sacrifice up $67,500 in the first year to have total concessional contributions of $77,500. In this case, the member would then have an income shortfall of $44,450, which they could replace by commencing a TTR income stream with their super savings of $450,000. After year one, the member would need to reduce their salary sacrifice arrangement to align with the standard concessional cap and roll part of the TTR pension back to accumulation phase to reduce the pension payments. However, by doing so, the member would have total super savings of $662,781 by age 65. 

The outcomes are summarised here:

Strategy 1 – employer SG contributions only

Total super balance: $633,169

Strategy 2 – salary sacrifice up to standard concessional cap to age 65 with TTR pension payments to replace lost income

Total super balance: $651,817

Benefit over strategy 1: $18,648

Strategy 3 – salary sacrifice up to effective concessional cap in year 1 then up to standard concessional cap to age 65 with TTR pension payments to replace lost income

Total super balance: $662,781

Benefit over strategy 1: $29,612

Therefore, the TTR salary sacrifice strategy could be used to allow members to fully utilise any unused cap amounts that accrued in the previous five years to maximise their final retirement balance.


The catch-up concessional cap rules may provide eligible members with additional flexibility to top up their superannuation. However, the rules are complicated, and advisers providing advice in this area will need to exercise caution to ensure they capture all relevant amounts so they can correctly calculate a member’s unused concessional cap amounts for previous years, and therefore a member’s effective concessional cap. 

Craig Day, executive manager, Colonial First State

Source: SMSF Adviser

SMSF lifestyle asset breaches under the microscope

The ATO has indicated it will be taking a closer look at lifestyle assets such as marine vessels, fine art and high-value motor vehicles in the new year, identifying possible breaches of the sole purpose test by SMSFs around these assets as an area of focus.

In a statement released on Wednesday, the regulator said it would be investigating SMSFs suspected of acquiring lifestyle assets “purely for the personal enjoyment of the fund’s trustee or beneficiaries”, as part of a wider exercise to match taxpayer data and high-value asset ownership.

The ATO said it would request policy information from 30 insurance companies to ascertain the value of assets owned by around 350,000 taxpayers between the 2016 and 2020 financial years, as part of its efforts to ensure taxpayers were fulfilling their tax and super reporting obligations.

The insurers would be required to provide the ATO with detailed policy information where the value of the asset was equal to or above $100,000 for marine vessels, $65,000 for motor vehicles, $100,000 for fine art, $150,000 for aircraft and $65,000 for thoroughbred horses.

ATO deputy commissioner Deborah Jenkins said knowing who owned such assets helped the agency get a more complete picture about the financial situation of taxpayers compared to what they had reported on their returns.

“If a taxpayer is reporting a taxable income of $70,000 to us but we know they own a $3 million yacht, then this is likely to raise some red flags,” Ms Jenkins said.

“Regardless of your level of wealth, we all need to pay the correct amount of tax, and this data will allow us to ensure those people who can afford these kinds of items are doing the right thing along with everyone else.”

Ms Jenkins clarified that the data would not be used to initiate compliance activity against taxpayers, but to aid the ATO in its investigations against individuals that had already been selected for compliance activities.

“The data is made available to our compliance teams to support their risk profiling of the selected taxpayers,” she said.

“Existence of an insurance policy may or may not prompt the compliance officer to pursue a particular line of inquiry.”

The regulator said it encouraged taxpayers who suspected they had failed to properly comply with their tax or super obligations to speak to their tax agent or make a voluntary disclosure to the ATO.

“Taxpayers who make a voluntary disclosure can generally expect a reduction in the administrative penalties and interest charges that would normally apply,” the ATO said.

Source: SMSF Adviser

Death benefit types affect minimum payments for pensions

When an SMSF member passes away midway through a financial year, the minimum pension payments for that year may not need to be met for the deceased person’s pension, depending on how they have nominated it to be paid out to their beneficiaries, according to Accurium.

Speaking in a recent webinar, Accurium general manager Doug McBirnie said that following the passing of an SMSF member, it was still possible to claim exempt current pension income on the deceased member’s pension for the financial year in which they had passed away despite the fact that the minimum payments may not have been met before they died.

“If it’s non-reversionary, there is no requirement to make a pension payment in that year — the ATO is happy that the ECPI can continue until the death benefits are paid out, as long as they are paid out as soon as practicable,” Mr McBirnie said.

“If the pension is reversionary, the spouse will take the pension, and in that case, if they have withdrawn the minimum pension during the year they can still claim ECPI.”

Accurium technical services manager Melanie Dunn said it was important to note that if the deceased member had opted for their pension to be reversionary on death, the minimum payments still needed to be met for the financial year in which they had passed away.

“The ability to not pay the pension payment is only where the pension is not automatically reversionary,” she said.

“Where it is reversionary, you must pay a minimum payment in the year, and if the client has not made the minimum payment, the income stream would not have met the minimum standards.”

However, Ms Dunn said the death of the member would not affect the amount that needed to be paid out of the pension during the year of the member’s passing.

“It’s based on the same minimum pension payment calculated back at 1 July — it doesn’t need to be pro-rated or anything like that, it’s the same minimum payment calculated on the income stream at the beginning of the year,” she said.

Source: SMSF Adviser

ATO flags Christmas shutdown for SMSF functions

The ATO has advised SMSF professionals that its systems will be unavailable during the period between Christmas and New Year due to planned upgrades.

In a communication on its website, the regulator said that from midday Australian eastern daylight time on 24 December, its systems would progressively become unavailable as it prepared for “major systems upgrades”.

“You should consider what reporting or activities you can lodge with us before the outage period starts,” the ATO said.

“We expect services to be restored from 6.00am AEDT on 2 January 2020.”

Between these dates, it would not be possible to notify the ATO of any changes of SMSF details or check the registration details of an SMSF, the regulator said.

“The electronic superannuation audit tool used to lodge an auditor/actuary contravention report will also be unavailable during this period,” the ATO said.

The announcement follows previous reporting by SMSF Adviser sister title Accountants Daily that noted the ATO was set to undertake its Activity Statement Financial Processing project during the annual Christmas/New Year closure period.

The major system upgrade would see more than 17 million activity statements and franking deficit tax accounts move into the accounting system currently used for income tax.

As such, the ATO advised that all Standard Business Reporting, including the practitioner lodgement service, and ATO online services, including Online Services for Agents, would be unavailable from 24 December to 2 January.

Commenting on the shutdown, ATO assistant commissioner Colin Walker said it would be a good opportunity for practitioners to take a well-deserved break.

Source: SMSF Adviser

Estate planning health check

With end of financial year compliance now wrapped up, many practitioners are turning their attention to estate planning concerns. Cooper Grace Ward Lawyers partner Scott Hay-Bartlem flags some of the key aspects that should be reviewed.

What needs to be reviewed with trust deeds?

It’s a good time for everyone to look at documents like trust deeds for SMSFs. Lots of trust deeds still have issues with things like binding death benefit nominations and reversionary pensions and don’t deal with them well, particularly if they’re older ones. One of the issues I’m really seeing at the moment is that there’s a problem with an old change of trustee or an old variation hasn’t been done properly, and that can call into doubt later decisions. Certainly, things like pensions and binding death benefit nominations, and other death benefit planning can go awry because we don’t have an early document done properly. There was a case last year called Perry v Nicholson where an old change of trustee nearly derailed the estate planning, so it’s important to make sure you’ve got all your documents lined up from the past.

Following the introduction of the transfer balance cap and other super reforms, what are some of the estate planning strategies that need to be reviewed?

Everyone with money in super certainly should be reviewing their estate planning following the budget reforms for a couple of reasons.

Firstly, it’s always good to make sure that what you’ve done is what you remember you did, and it’s still current and effective because things change all the time. Also, with the new limits and transfer balance cap, the option that we used to have of just continuing the pension to the surviving spouse may no longer be there, and that means you may need to look at some alternatives to get the best estate planning results for the client.

We’ve certainly seen files from three years ago, where there was an estate plan set up with a great result, but because of the new limitations on how much we can have in pension phase, we’re not going to get that result we had anymore, and we need to do something differently and tweak the plan to continue getting the best result. With some clients, when we look at the old estate plan, we decide that we’ll have to do it differently, but what we set up initially is still going to work for us. With other clients, it’s clear that one of the other options is going to achieve a better result now, because we can’t do what we used to do.

Strategies such as binding nominations or reversionary pensions, for example, that force all the super to the spouse may not be the best answer or doable. Some clients will have to have a large amount of money leave the superannuation system when one of them dies. For example, some of the old estate planning that was done sent all of the money to the spouse, because you could with a pension. Now, it has to leave the super system as a lump sum. So, we’re now asking questions around whether it’s better to put that into the estate and have it go into a testamentary trust in order to create almost like a life interest for the spouse, so that it must go to the kids once the spouse has died. Rather than having $1 million come out of the super system and end up in the name of the surviving spouse, we have it go through the will and into a testamentary trust. That can provide some tax benefits to the adult children and their minor grandchildren. It may also give protection from a lawsuit that the spouse might be subject to, because they have professional or business risk. It might also provide protection if the spouse re-partners. So, for some people, having that as an alternative can be a better option than having it come out of the super system and end up with the spouse. If you’ve got a binding nomination to the spouse or reversionary pension that forces it all to the spouse, then we’re going lose that kind of option.

For some clients, we’re skipping the spouse altogether, and we’re planning to send the lump sum amount to the adult children or the young children. May not be as tax effective initially, but where the surviving spouse has enough money or the client is concerned about them repartnering or business risk issues, that can be an effective alternative to just forcing the super to go to the surviving spouse.

We’ve done a few reviews of clients from 2011 and 2012, back when the ATO came out with the tax ruling that said a pension stopped when you died, and, therefore, you lost the tax exemption for the income from the assets that were supporting the pension unless you forced it to continue to the surviving spouse. So, we’ve got a whole lot of estate planning from that era where, again, it forces it to the surviving spouse as a pension. That’s not always going to work anymore, and those strategies are ones that really need to be reviewed to make sure it’s still going to work for us. If the client is happy for their spouse to have the money and the choice, then they may not need a binding death benefit nomination anymore. They may want to give their spouse the flexibility of choosing an estate with a testamentary trust, or paying it to the kids or themselves, if they want to. They may not want the pension to revert to the surviving spouse because of the limits on the amount that they can take as a pension, and there’s going to be amounts coming out as lump sums.

The other side of it too is that in many cases, the structure of an SMSF will have changed. Those who once just had a pension interest now have a pension and a lump sum interest. So, they might have been relying on a reversion to pass all their super through to the spouse, but they’ve now got an accumulation interest as well, so they will need to do a binding death benefit nomination for that. Therefore, we need to look at whether the current arrangements, whether that’s binding nomination or a reversionary pension, are still appropriate and support the estate planning outcome. It might be the super fund itself has changed, and what we used to do is not going to get us the result anymore.

Is there anything else that should be reviewed on the estate planning front?

We’re still seeing lots of files where someone comes to us after a death with what they think is a reversionary pension or a binding death benefit nomination, and for a variety of reasons, they’re not. It’s a good time to do a health check. Look at all the documents and deeds, and make sure they still get the client the result.

I see lots of people with the old pensions, because often it’s hard to find pension documents from 1996 that are now well over 20 years old – so it’s a good time to make sure you know where those documents are, because, eventually, you’ll need to see these pension documents.

These days, with technology, we scan everything in, but back in the mid-90s, we didn’t do that, so putting hands on documents that are 20 years old can be a challenge. If we’re trying to establish that the pension automatically continues because it’s reversionary, we’re going need to see the pension documents, so if no one can find the pension documents, we can’t establish there’s a reversion, or it’s very hard to establish that there’s a proper reversion in place.

I also still haven’t seen many people embracing child pensions. I think with transfer balance caps, limiting the amount that can often go to a surviving spouse, it’s important to remember that there can be benefits in paying benefits to children as pensions. A child pension has to finish effectively at age 25, but if you’re looking at children under age 18 or even 25, or disabled children, they can be a good strategy for those categories. It’s not going to work for everyone, but you should be conscious that it’s there as an option.

Source: SMSF Adviser

Australians not prepared for ‘largest’ transfer in history

Despite being the largest transfer of intergenerational wealth, the vast majority of Australians are not prepared, according to new figures.

Perpetual has revealed that 76 per cent of Australians do not have a current will, while 53 per cent of parents have not discussed their will and legacy with their children.

Perpetual Private’s Andrew Baker, general manager of private clients, believes the majority of parents wish their children would use their inheritance wisely and build for the future, but research shows the opposite is happening.

He conceded, however, that the rising costs of living, slow wage growth and a volatile property market is painting a different picture of wealth today than it was 30 years ago.

“It is estimated that 70 per cent of families will lose their wealth by the second generation and 90 per cent will lose it by the third,” said Mr Baker.

To offset risks of families losing their wealth, Mr Baker advocates for discussions around wills and inheritance be broken down so all parties can be prepared and have a plan in place.

“As humans, we tend to shy away from discussing money amongst our families and friends.”

“However, as we approach the largest intergenerational wealth transfer in history with more than half of Australians expecting to inherit, why have only just over a third discussed their wishes with their children?” Mr Baker said.

The wealth manager believes normalising discussions around money and the future can preserve wealth across generations.

Source: SMSF Adviser